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FIFTEENTH EDITION The Legal & Regulatory Environment of Business Chapter 1— Law as the Foundation of Business REED McGraw-Hill/Irwin SHEDD PAGNATTARO MOREHEAD Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved. 1-1 “The United States is a nation of law.” John Adams 1-2 Introduction Law, the rule of law, and property provide a necessary foundation for successful modern business and set maximum conditions for generating “wealth of nations.” 1-3 Learning Objectives To understand why the legal systems contribute to making the economies of some nations stronger than others. To grasp that “property” refers to the right of ownership itself. To appreciate the legal sources available to lawyers. To explain why stare decisis is different in common-law nations than in civil law nations. 1-4 Why Nations are Weak or Strong? Dependency theory Natural resources- exploitation Education & technology Climate Modern private market Law & legal system 1-5 Law’s Role Religion Customs Economics One of the social forces that hold society together. Law Law is most significant because it can bind together diverse groups. 1-6 Law-Definition LAW Rules Created by State Enforceable 1-7 Importance of Enforcement ‘Without adequate enforcement, the certainty and trust necessary to make complex, long-term business transactions are absent.’ 1-8 Rule Of Law Laws are made generally and equally applicable. Apply to various groups in same way Apply to all or most members of society 1-9 Food for Thought… Almost all wealthy countries embrace the rule of law. 1-10 Rule Of Law Nations Adopt laws supporting private marketplace. Law applies to lawmakers as well as rest of society. This is in everyone’s interest. 1-11 pop pop pop QUIZQUIZQUIZ Climate can lead to nations being either weak or strong. a.True b.False 1-12 pop pop pop QUIZQUIZQUIZ What is the rule of law? 1-13 think think think TANK TANK TANK Were you impacted by the law on the way to class today? a. Yes b. No 1-14 Property Property means The legal right to exclude or keep others from interfering. Ownership Private, exclusive rights in resources. 1-15 Property is a type of legal fence that keeps others out by announcing private ownership and enforcing it. 1-16 Property Rights Owners can keep others from interfering through police and courts. Provides incentive for development. Western culture flourish connected to legal recognition of property rights. 1-17 Property - Broad Sense Property is the central concept underlying Western legal systems. 1-18 Property - Broad Sense 1-19 Property - Broad Sense ‘ Private property ‘ Property in its begins with the right we have in ourselves and in our efforts and actions.’ larger and juster meaning … embraces everything to which a man may attach value and have a right.’ John Locke James Madison 1-20 Property - Broad Sense Social prosperity and wealth of nations Secret to lies in adequate foundations Implementing legal system Property law 1-21 Jurisprudence Natural Law Jurisprudence Philosophies that explain origin, justification, meaning, and essence of law. Positive Law Historical School Sociological Legal Realism 1-22 Classifications Of Law - Overview Civil Law – Common Law Public Law – Private Law Civil Law – Criminal Law Substantive Law – Procedural Law 1-23 Civil Law – Common Law Classification Two Major Legal Systems Civil Law Common Law Law based on statutory codification of law. Law based on written judicial decisions that establish precedent. Romano-Germanic Anglo-American 1-24 Civil Law – Common Law Classification Examples United Kingdom Canada Jamaica New Zealand United States Common Law Law based on written judicial decisions that establish precedent. Anglo-American India 1-25 Civil Law – Common Law Classification Examples Civil Law Law based on statutory codification of law. Romano-Germanic Continental Europe Latin America Japan Former French colonies Spain 1-26 Public Law – Private Law Classification Public Law Private Law Law dealing with regulation of society. Law dealing with issues that concern private resource relationships. •Constitutional Law •Property Law •Administrative Law •Contract Law •Criminal Law •Tort Law 1-27 Internet Law Software creators = property? Internet binding agreements Monitor e-mail? Rights to copies of intellectual property? Employers & employee discipline? Regulation of internet? Interstate commerce? ISPs liability? 1-28 Civil Law – Criminal Law Classification Civil Law Criminal Law Law dealing with private rights between people. Law dealing with offenses against society at large. •Torts & contracts •Prosecuted by gov’t •Damages •Results in Punishment •No punishment 1-29 Substantive Law – Procedural Law Classification Substantive Law Procedural Law The part of the law creating, defining, and regulating rights, duties, and powers. The What The part of the law telling the methods/means for having rights or duties enforced. The How 1-30 Sources of Law Constitutions • Set forth fundamental rights • Describe and empower government • Set forth limitations on power Legislation Laws by Congress or state legislature and local ordinances. Administrative Regulation Judicial Decisions or Case Law Rule or order by federal, state, or local regulatory agencies. Decisions by courts that interpret and enforce laws or the common law. 1-31 Sources of Law Constitutions Constitutions Legislation • Set forth fundamental rights • Describe and empower government • Set forth limitations on power •U.S. Constitution and individual state constitutions. Laws by Congress or state legislature and local – Federal ordinances. •Hierarchy constitution is supreme. Administrative Regulation Judicial Decisions or Case Law Rule or order by federal, state, or local regulatory agencies. •See Article VI. Decisions by courts that interpret and enforce laws or the common law. 1-32 Sources of Law Constitutions • Set forth fundamental rights • Describe and empower government • Set forth limitations power •Federal LawonPreempts •Uniformity State •States Adopt Single Law Legislation Legislation Administrative Regulation Judicial Decisions or Case Law Laws by Congress or state legislature and local Interpretation ordinances. •General Language •Courts InterpretRule or order Must by federal, state, or local regulatory agencies. Statutory Construction Decisions by courts that interpret and enforce laws or the common law. 1-33 Sources of Law • Set forth fundamental rights • Describe and empower government • Set forth limitations on power Constitutions •Rules of governmental body charged with implementing law. Legislation Laws by Congress or state legislature and local ordinances. •Consumer Product Safety •EPA Commission. Admin. Rules and Regulations Administrative Rule or order by federal, state, or local regulatory agencies. •Allow government to Regulation work Decisions bymore courts thateffectively Judicial Decisions laws or the common law.interpret and enforce – bodies with expertise. or Case Law 1-34 Sources of Law Constitutions • Set forth fundamental rights • Describe and empower government – • Set forth limitations on power •Opinions Reasons •Precedents – Similar Legislation Administrative Regulation Judicial Decisions Judicial Decisions or Case Law Laws•Facts by Congress or state legislature and local •Legal Issues ordinances. •Stare Decisis Rule or order by federal, state, or local regulatory •Precedent agencies. and Dicta •Conflict of Laws Decisions by courts that interpret and enforce laws or the common law. 1-35 Sources of Law Hierarchy U.S. Constitution Federal Legislation Federal Administrative Regulation State Constitutions State Legislation State Administrative Regulation Local Ordinances Case law 1-36 Case Law Advantages Stare Decisis Judges follow precedents. Gives certainty & predictability. — Disadvantages Volume of cases Conflicting precedents Conflicts of law 1-37 Legal Sanctions Encourage/force compliance Punishment & prevention Benefit of society Punish someone Benefit of another - remedy 1-38 Criminal Conduct Crime Punishment •Public wrong •Court punishes on behalf of society •Death •Imprisonment •Fine •Removal •Disqualification 1-39 Breach Of Contract Remedies •Damages (Money) •Compensatory Breach of Contract •Private wrong •Failure to perform •Consequential •Rescission •Specific performance 1-40 Tortious Conduct Tort •Civil wrong (other than breach of contract) •Intentional •Negligence •Strict liability Remedies •Compensatory damages (money) •Punitive damages (exemplary damages) 1-41 Violation of Statutes or Regulations May impose sanctions to accomplish statutory purposes. Similar to crimes, torts, and breach of contract. 1-42 pop pop pop QUIZQUIZQUIZ Statutory law comes into existence through a. the courts b. the legislature 1-43 think think think TANK TANK TANK Would you be comfortable to enter into a business deal if you knew that the contract you signed would not or could not be adequately enforced? a. Yes b. No 1-44 Legal System & Corporate Governance Corporation – legal person Ownership – shareholders Resource control Board of directors Managers Corporate governance – rules protecting owners’ property interest 1-45